The rating on the short-term bank facilities has been upgraded to 'Crisil A1+’ from 'Crisil A1’.
Crisil Ratings stated that the revision in outlook factors in sustained improvement in the business risk profile of the Heritage group, driven by healthy growth in revenue and operating margin, along with prudent working capital management.
Revenue is projected to grow at a healthy pace in fiscal 2025, from Rs 3,794 crore in fiscal 2024, with increase in demand translating into healthy volumetric growth and price realisations. Revenue is further likely to maintain the healthy growth momentum over the medium term.
Operating margin is also expected to improve in fiscal 2025, supported by lower procurement prices and average selling prices remaining fairly stable. Though procurement prices may rise, the margin should remain at healthy levels over the medium term.
Working capital requirement of the group is managed efficiently. Prudent working capital management, coupled with moderate profitability, should keep the return on capital employed healthy, over the medium term.
The outlook revision also factors in the strong financial risk profile, marked by healthy networth, against moderate debt, resulting in a robust capital structure and debt protection metrics.
The upgrade in the short-term rating reflects improvement in liquidity of the Heritage group, with investments in liquid mutual funds and unencumbered cash balance of Rs 352 crore as on 30 September 2024, an unutilized working capital limit and adequate cash accrual against minimal repayment obligations.
The ratings continue to reflect the group’s strong market position in the dairy business, its well-established distribution network, prudent working capital management and healthy financial risk profile. These strengths are partially offset by exposure to volatility in milk prices, geographic concentration in revenue, regulatory changes and inherent epidemic-related factors.
Heritage Foods is the parent entity of the Hyderabad-based Heritage group, which sells milk and dairy products under the Heritage brand. The group also has captive solar and wind power plants with an installed capacity of 11.70 megawatts.
The scrip shed 0.90% to currently trade at Rs 384.20 on the BSE.